SEC finalises draft bill to de-mutualise CSE

The Securities and Exchange Commission of Sri Lanka (SEC) is finalising the draft bill to de-mutualise the Colombo Stock Exchange (CSE) to bring the capital market on par with those mature markets, said Chairman, Dr. Tilak Karunaratna. The high growth in the Colombo Stock Market seen in 2009, 2010 and in the first quarter of 2011 caused price volatility and has created many regulatory and supervisory issues.

The SEC was forced to step in and take measures to curb the volatility and reduce the systemic risk in the market.

During the year under review the SEC continued to provide proper direction and consistency in policies towards fulfilling the mandate of fostering a fair, efficient and transparent capital market. Sri Lanka's capital market has developed faster and comprehensively in the past three years, than any other time in history.

He said that the SEC is of the opinion, that for a market to be attractive for potential investors it must earn investor-confidence.

In the middle of 2010 as fears of a speculatory bubble grew, the SEC imposed credit restrictions to bring sanity to the market.

Towards the latter part of 2011 to stimulate the market, these restrictions were relaxed to some extent while further concessions were given at the beginning of 2012.

Due to changing conditions in the domestic capital market landscape it was necessary to step up SEC's efforts in supervisory to a proactive risk focused framework. The risk- based supervision of the SEC focused on continuous monitoring and evaluation of the risk profiles of regulated entities in relation to their business conduct and financial soundness.

The SEC monitor trading activities on a real time basis to detect a range of possible market misconduct. This enabled the SEC to act promptly to curb potential market misconduct and enhance investor protection.

The SEC has initiated an effective and integrated surveillance and monitoring system which generates alerts from unusual market movements. During the year the SEC was able to detect possible market violations and initiate action whenever needed.

In 2011 various cases of market misconduct were detected.

There were 33 possible referrals which were forwarded to the surveillance and investigations committee. fifteen percent of the cases reported were possible insider dealing cases, 58 percent can be categorised as market manipulation, 12 percent of front running while the rest of the detections were related to unfair trading practices by the dealer or trader.

The SEC received 48 complaints of which 44 were resolved during the year under review.